11.2: Understanding Decision Making (2024)

Learning Objectives

1. Define decision making.
2. Understand different types of decisions.

Types of Decisions

Despite the far-reaching nature of the decisions in the previousexample, not all decisions have major consequences or even requirea lot of thought. For example, before you come to class, you makesimple and habitual decisions such as what to wear, what to eat,and which route to take as you go to and from home and school. Youprobably do not spend much time on these mundane decisions. Thesetypes of straightforward decisions are termed programmed decisions,or decisions that occur frequently enough that we develop anautomated response to them. The automated response we use to makethese decisions is called the decision rule. For example, many restaurantsface customer complaints as a routine part of doing business.Because complaints are a recurring problem, responding to them maybecome a programmed decision. The restaurant might enact a policystating that every time they receive a valid customer complaint,the customer should receive a free dessert, which represents adecision rule.

On the other hand, unique and important decisions requireconscious thinking, information gathering, and carefulconsideration of alternatives. These are called nonprogrammeddecisions. For example, in 2005 McDonald’s Corporationbecame aware of the need to respond to growing customer concernsregarding the unhealthy aspects (high in fat and calories) of thefood they sell. This is a nonprogrammed decision, because forseveral decades, customers of fast-food restaurants were moreconcerned with the taste and price of the food, rather than itshealthiness. In response to this problem, McDonald’s decided tooffer healthier alternatives such as the choice to substituteFrench fries in Happy Meals with apple slices and in 2007 theybanned the use of trans fat at their restaurants.

A crisis situation also constitutes a nonprogrammed decision forcompanies. For example, the leadership of Nutrorim was facing atough decision. They had recently introduced a new product,ChargeUp with Lipitrene, an improved version of their popularsports drink powder, ChargeUp. At some point, a phone call camefrom a state health department to inform them of 11 cases ofgastrointestinal distress that might be related to their product,which led to a decision to recall ChargeUp. The decision was madewithout an investigation of the information. While this decisionwas conservative, it was made without a process that weighed theinformation. Two weeks later it became clear that the reportedhealth problems were unrelated to Nutrorim’s product. In fact, allthe cases were traced back to a contaminated health club juice bar.However, the damage to the brand and to the balance sheets wasalready done. This unfortunate decision caused Nutrorim to rethinkthe way decisions were made when under pressure. The company nowgathers information to make informed choices even when time is ofthe essence (Garvin, 2006).

Decisions can be classified into three categories based on thelevel at which they occur. Strategic decisions set the course of anorganization. Tactical decisions are decisions about howthings will get done. Finally, operational decisions refer to decisionsthat employees make each day to make the organization run. Forexample, think about the restaurant that routinely offers a freedessert when a customer complaint is received. The owner of therestaurant made a strategic decision to have great customerservice. The manager of the restaurant implemented the free dessertpolicy as a way to handle customer complaints, which is a tacticaldecision. Finally, the servers at the restaurant are makingindividual decisions each day by evaluating whether each customercomplaint received is legitimate and warrants a free dessert.

Figure 11.4 Examples ofDecisions Commonly Made Within Organizations

In this chapter we are going to discuss differentdecision-making models designed to understand and evaluate theeffectiveness of nonprogrammed decisions. We will cover fourdecision-making approaches, starting with the rationaldecision-making model, moving to the bounded rationalitydecision-making model, the intuitive decision-making model, andending with the creative decision-making model.

Making Rational Decisions

The rationaldecision-making model describes a series of steps thatdecision makers should consider if their goal is to maximize thequality of their outcomes. In other words, if you want to make surethat you make the best choice, going through the formal steps ofthe rational decision-making model may make sense.

Let’s imagine that your old, clunky car has broken down, and youhave enough money saved for a substantial down payment on a newcar. It will be the first major purchase of your life, and you wantto make the right choice. The first step, therefore, has alreadybeen completed—we know that you want to buy a new car. Next, instep 2, you’ll need to decide which factors are important to you.How many passengers do you want to accommodate? How important isfuel economy to you? Is safety a major concern? You only have acertain amount of money saved, and you don’t want to take on toomuch debt, so price range is an important factor as well. If youknow you want to have room for at least five adults, get at least20 miles per gallon, drive a car with a strong safety rating, notspend more than $22,000 on the purchase, and like how it looks, youhave identified the decision criteria. All the potential optionsfor purchasing your car will be evaluated against these criteria.Before we can move too much further, you need to decide howimportant each factor is to your decision in step 3. If each isequally important, then there is no need to weigh them, but if youknow that price and mpg are key factors, you might weigh themheavily and keep the other criteria with medium importance. Step 4requires you to generate all alternatives about your options. Then, instep 5, you need to use this information to evaluate eachalternative against the criteria you have established. You choosethe best alternative (step 6), and then you would go out and buyyour new car (step 7).

Of course, the outcome of this decision will influence the nextdecision made. That is where step 8 comes in. For example, if youpurchase a car and have nothing but problems with it, you will beless likely to consider the same make and model when purchasing acar the next time.

While decision makers can get off track during any of thesesteps, research shows that searching for alternatives in the fourthstep can be the most challenging and often leads to failure. Infact, one researcher found that no alternative generation occurredin 85% of the decisions he studied (Nutt, 1994). Conversely,successful managers know what they want at the outset of thedecision-making process, set objectives for others to respond to,carry out an unrestricted search for solutions, get key people toparticipate, and avoid using their power to push their perspective(Nutt, 1998).

The rational decision-making model has important lessons fordecision makers. First, when making a decision, you may want tomake sure that you establish your decision criteria before yousearch for alternatives. This would prevent you from liking oneoption too much and setting your criteria accordingly. For example,let’s say you started browsing cars online before you generatedyour decision criteria. You may come across a car that you feelreflects your sense of style and you develop an emotional bond withthe car. Then, because of your love for the particular car, you maysay to yourself that the fuel economy of the car and the innovativebraking system are the most important criteria. After purchasingit, you may realize that the car is too small for your friends toride in the back seat, which was something you should have thoughtabout. Setting criteria before you search for alternatives mayprevent you from making such mistakes. Another advantage of therational model is that it urges decision makers to generate allalternatives instead of only a few. By generating a large number ofalternatives that cover a wide range of possibilities, you areunlikely to make a more effective decision that does not requiresacrificing one criterion for the sake of another.

Despite all its benefits, you may have noticed that thisdecision-making model involves a number of unrealistic assumptionsas well. It assumes that people completely understand the decisionto be made, that they know all their available choices, that theyhave no perceptual biases, and that they want to make optimaldecisions. Nobel Prize winning economist Herbert Simon observedthat while the rational decision-making model may be a helpfuldevice in aiding decision makers when working through problems, itdoesn’t represent how decisions are frequently made withinorganizations. In fact, Simon argued that it didn’t even comeclose.

Think about how you make important decisions in your life. It islikely that you rarely sit down and complete all 8 of the steps inthe rational decision-making model. For example, this modelproposed that we should search for all possible alternatives beforemaking a decision, but that process is time consuming, andindividuals are often under time pressure to make decisions.Moreover, even if we had access to all the information that wasavailable, it could be challenging to compare the pros and cons ofeach alternative and rank them according to our preferences. Anyonewho has recently purchased a new laptop computer or cell phone canattest to the challenge of sorting through the different strengthsand limitations of each brand and model and arriving at thesolution that best meets particular needs. In fact, theavailability of too much information can lead to analysis paralysis,in which more and more time is spent on gathering information andthinking about it, but no decisions actually get made. A seniorexecutive at Hewlett-Packard Development Company LP admits that hiscompany suffered from this spiral of analyzing things for too longto the point where data gathering led to “not making decisions,instead of us making decisions” (Zell, Glassman, & Duron,2007). Moreover, you may not always be interested in reaching anoptimal decision. For example, if you are looking to purchase ahouse, you may be willing and able to invest a great deal of timeand energy to find your dream house, but if you are only lookingfor an apartment to rent for the academic year, you may be willingto take the first one that meets your criteria of being clean,close to campus, and within your price range.

Making “Good Enough” Decisions

The boundedrationality model of decision making recognizes thelimitations of our decision-making processes. According to thismodel, individuals knowingly limit their options to a manageableset and choose the first acceptable alternative without conductingan exhaustive search for alternatives. An important part of thebounded rationality approach is the tendency to satisfice (a termcoined by Herbert Simon from satisfy andsuffice), which refers to accepting thefirst alternative that meets your minimum criteria. For example,many college graduates do not conduct a national or internationalsearch for potential job openings. Instead, they focus their searchon a limited geographic area, and they tend to accept the firstoffer in their chosen area, even if it may not be the ideal jobsituation. Satisficing is similar to rational decision making. Themain difference is that rather than choosing the best option andmaximizing the potential outcome, the decision maker savescognitive time and effort by accepting the first alternative thatmeets the minimum threshold.

Making Intuitive Decisions

The intuitivedecision-making model has emerged as an alternative toother decision making processes. This model refers to arriving atdecisions without conscious reasoning. A total of 89% of managerssurveyed admitted to using intuition to make decisions at leastsometimes and 59% said they used intuition often (Burke &Miller, 1999). Managers make decisions under challengingcirc*mstances, including time pressures, constraints, a great dealof uncertainty, changing conditions, and highly visible andhigh-stakes outcomes. Thus, it makes sense that they would not havethe time to use the rational decision-making model. Yet when CEOs,financial analysts, and health care workers are asked about thecritical decisions they make, seldom do they attribute success toluck. To an outside observer, it may seem like they are makingguesses as to the course of action to take, but it turns out thatexperts systematically make decisions using a different model thanwas earlier suspected. Research on life-or-death decisions made byfire chiefs, pilots, and nurses finds that experts do not chooseamong a list of well thought out alternatives. They don’t decidebetween two or three options and choose the best one. Instead, theyconsider only one option at a time. The intuitive decision-makingmodel argues that in a given situation, experts making decisionsscan the environment for cues to recognize patterns (Breen, 2000;Klein, 2003; Salas & Klein, 2001). Once a pattern isrecognized, they can play a potential course of action through toits outcome based on their prior experience. Thanks to training,experience, and knowledge, these decision makers have an idea ofhow well a given solution may work. If they run through the mentalmodel and find that the solution will not work, they alter thesolution before setting it into action. If it still is not deemed aworkable solution, it is discarded as an option, and a new idea istested until a workable solution is found. Once a viable course ofaction is identified, the decision maker puts the solution intomotion. The key point is that only one choice is considered at atime. Novices are not able to make effective decisions this way,because they do not have enough prior experience to draw upon.

Making Creative Decisions

In addition to the rational decision making, boundedrationality, and intuitive decision-making models, creativedecision making is a vital part of being an effective decisionmaker. Creativity is the generation of new,imaginative ideas. With the flattening of organizations and intensecompetition among companies, individuals and organizations aredriven to be creative in decisions ranging from cutting costs togenerating new ways of doing business. Please note that, whilecreativity is the first step in the innovation process, creativityand innovation are not the same thing. Innovation begins withcreative ideas, but it also involves realistic planning andfollow-through. Innovations such as 3M’s Clearview Window Tintinggrow out of a creative decision-making process about what may ormay not work to solve real-world problems.

The five steps to creative decision making are similar to theprevious decision-making models in some keys ways. All the modelsinclude problem identification, which is the step in which the needfor problem solving becomes apparent. If you do not recognize thatyou have a problem, it is impossible to solve it. Immersion is thestep in which the decision maker consciously thinks about theproblem and gathers information. A key to success in creativedecision making is having or acquiring expertise in the area beingstudied. Then, incubation occurs. During incubation, the individualsets the problem aside and does not think about it for a while. Atthis time, the brain is actually working on the problemunconsciously. Then comes illumination, or the insight moment whenthe solution to the problem becomes apparent to the person,sometimes when it is least expected. This sudden insight is the“eureka” moment, similar to what happened to the ancient Greekinventor Archimedes, who found a solution to the problem he wasworking on while taking a bath. Finally, the verification andapplication stage happens when the decision maker consciouslyverifies the feasibility of the solution and implements thedecision.

A NASA scientist describes his decision-making process leadingto a creative outcome as follows: He had been trying to figure outa better way to de-ice planes to make the process faster and safer.After recognizing the problem, he immersed himself in theliterature to understand all the options, and he worked on theproblem for months trying to figure out a solution. It was notuntil he was sitting outside a McDonald’s restaurant with hisgrandchildren that it dawned on him. The golden arches of the M ofthe McDonald’s logo inspired his solution—he would design thede-icer as a series of Ms.[1]This represented the illumination stage. After he tested andverified his creative solution, he was done with that problem,except to reflect on the outcome and process.

How Do You Know If Your Decision-Making Process IsCreative?

Researchers focus on three factors to evaluate the level ofcreativity in the decision-making process. Fluency refers to thenumber of ideas a person is able to generate. Flexibility refers tohow different the ideas are from one another. If you are able togenerate several distinct solutions to a problem, yourdecision-making process is high on flexibility. Originality refers tohow unique a person’s ideas are. You might say that Reed Hastings,founder and CEO of Netflix Inc. is a pretty creative person. Hisdecision-making process shows at least two elements of creativity.We do not know exactly how many ideas he had over the course of hiscareer, but his ideas are fairly different from each other. Afterteaching math in Africa with the Peace Corps, Hastings was acceptedat Stanford, where he earned a master’s degree in computer science.Soon after starting work at a software company, he invented asuccessful debugging tool, which led to his founding of thecomputer troubleshooting company Pure Software LLC in 1991. After amerger and the subsequent sale of the resulting company in 1997,Hastings founded Netflix, which revolutionized the DVD rentalbusiness with online rentals delivered through the mail with nolate fees. In 2007, Hastings was elected to Microsoft’s board ofdirectors. As you can see, his ideas are high in originality andflexibility (Conlin, 2007).

Some experts have proposed that creativity occurs as aninteraction among three factors: people’s personality traits(openness to experience, risk taking), their attributes (expertise,imagination, motivation), and the situational context(encouragement from others, time pressure, physical structures)(Amabile, 1988; Amabile et al., 1996; Ford & Gioia, 2000;Tierney, Farmer, & Graen, 1999; Woodman, Sawyer, & Griffin,1993). For example, research shows that individuals who are open toexperience, less conscientious, more self-accepting, and moreimpulsive tend to be more creative (Feist, 1998).

There are many techniques available that enhance and improvecreativity. Linus Pauling, the Nobel Prize winner who popularizedthe idea that vitamin C could help strengthen the immune system,said, “The best way to have a good idea is to have a lot ofideas.”[2]One popular method of generating ideas is to use brainstorming.Brainstorming is a group process ofgenerating ideas that follow a set of guidelines, including nocriticism of ideas during the brainstorming process, the idea thatno suggestion is too crazy, and building on other ideas(piggybacking). Research shows that the quantity of ideas actuallyleads to better idea quality in the end, so setting highideaquotas, in which the group must reach a set number ofideas before they are done, is recommended to avoid process lossand maximize the effectiveness of brainstorming. Another uniqueaspect of brainstorming is that since the variety of backgroundsand approaches give the group more to draw upon, the more peopleare included in the process, the better the decision outcome willbe. A variation of brainstorming is wildstorming, inwhich the group focuses on ideas that are impossible and thenimagines what would need to happen to make them possible (Scott,Leritz, & Mumford, 2004).

Figure 11.8

Which decision-making model should I use?